<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A2
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): AUGUST 19, 1996
---------------------
INTERNATIONAL REALTY GROUP, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-20180 62-1277260
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
111 NORTHWEST 183RD STREET, SUITE 518, MIAMI, FLORIDA 33169
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 944-8811
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<PAGE> 2
ITEM 2 . ACQUISITION OF ASSETS
GENERAL
As previously disclosed in its Report on Form 8-K filed with the
Securities and Exchange Commission (the "Commission") on September 5, 1996,
International Realty Group, Inc. (the "Company") consummated a share exchange
transaction ("Transaction") with DSC, S.A. de C.V. ("DSC") and Hemisphere
Developments Limited ("Hemisphere") on August 19, 1996 (the "Closing Date"). As
more fully described below, the parties to the Transaction have agreed to
certain revised terms of the Transaction pursuant to an Amended and Restated
Agreement among the Company, DSC and Hemisphere (the "Amended and Restated
Agreement"). The parties have designated the Closing Date as the effective date
of the Amended and Restated Agreement in order to facilitate the Company's
filing with the Commission of financial statements prepared in accordance with
generally accepted accounting principles. See "Reasons for and Summary of
Amendments to the Transaction."
The amended Transaction will have no effect on the previously reported
change in control of the Company following the filing of an Information
Statement under Regulation 14C of the Securities Exchange Act of 1934 and an
increase of the Company's authorized shares of common stock, par value $.001 per
share ("Common Stock"), from its current 10,000,000 shares to 450,000,000
shares. Such Information Statement is expected to be filed with the Commission
during the fourth quarter of 1997. See "Change of Control" below.
REASON FOR AND SUMMARY OF AMENDMENTS TO THE TRANSACTION
The Transaction has been amended to conform the terms of the
Transaction with the accounting treatment of the Transaction. The parties to the
Transaction originally intended for the Transaction to be accounted under the
purchase method, pursuant to which the assets and liabilities transferred in the
Transaction were valued at market cost. Upon further review of the accounting
treatment of the Transaction and in consultation with the Company's accountants,
the parties to the Transaction have determined to account for the Transaction
using the pooling of interest method based upon the change in control that will
occur in connection with the Transaction. See "Change of Control." Accordingly,
and as set forth in the financial statements included elsewhere in this Form
8-K, the assets and liabilities transferred in the Transaction have been
accounted for at historical cost. DSC has been designated as the acquiring party
in the Transaction by virtue of, among other things, its ability to the control
the Board of Directors of the Company upon conversion of the promissory notes
issued in the Transaction. See "Change in Control." As a result of the change in
the accounting treatment of the Transaction, the aggregate principal amount of
the notes originally issued to DSC and Hemisphere have, as described below, been
reduced to reflect the historical cost of the assets and liabilities transferred
in the Transaction.
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<PAGE> 3
The Transaction has also been amended as a result of the Company's
inability to meet its obligations under two convertible promissory notes that
became due on December 31, 1996. Pursuant to the original Transaction, the
Company issued: (i) a promissory note to DSC (the "Original DSC Note") in the
principal amount of $29,673,658, which was convertible into 37,945,854 shares of
Common Stock; and (ii) a promissory note to Hemisphere (the "Original Hemisphere
Note") in the principal amount of $32,120,440, which was convertible into an
41,074,732 shares of Common Stock. The Company had the right to force the
conversion of such notes after the Company increased its authorized capital
stock to permit the issuance of such shares of Common Stock. When the Company
failed to increase its authorized capital stock by December 31, 1996, such notes
became immediately payable together with interest at a rate of five percent per
year. In lieu of foreclosing on such notes, which were secured by all of the
assets acquired by the Company in the original August 1996 Transaction, the
parties have agreed to amendments to the notes and Transaction as described
below.
For the foregoing reasons, the parties have amended certain terms of
the Transaction, including the following:
1. The Original DSC Note has been replaced with a convertible
promissory note in the principal amount of $4,858,828, which will be converted
into 52,875,030 shares of Common Stock after the Company's Certificate of
Incorporation has been amended to increase the number of authorized shares of
Common Stock from 10,000,000 to 450,000,000.
2. The Original Hemisphere Note has been replaced with a convertible
promissory note in the principal amount of $4,848,558, which will be converted
into 52,763,270 shares of Common Stock after the Company's Certificate of
Incorporation has been amended to increase the number of authorized shares of
Common Stock from 10,000,000 to 450,000,000.
3. The proxy granted by Messrs. Bradbury and Birnholz to DSC has
expired by its terms.
4. There has been no change in the assets acquired from DSC and
Hemisphere in the Transaction as a result of the Amended and Restated Agreement,
with the exception that Nueva Tierra has terminated its agreement with the owner
of the Barra del Tordo property to form a Participating Association to develop
such property. Nueva Tierra's decision to terminate its interest in Barra del
Tordo was based on the high levels of debt associated with such property and its
adverse effect on the prospects of obtaining financing to develop such property.
5. The Amended and Restated Agreement provides that DSC will make
$300,000 in working capital advances to the Company. DSC made approximately
$195,000 of such advances to the Company as of the Closing Date and
approximately $295,000 as of the date hereof. The amount of such advances have
been added to the amount of the capital contributed to the Company in
Transaction.
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<PAGE> 4
TERMS OF THE TRANSACTION AS AMENDED
Pursuant to the Amended and Restated Agreement, the Company acquired
the following assets from DSC and Hemisphere as of August 19, 1996: (i) DSC's
100 percent interest in Centro de Promociones Guerrero S.A. de C.V. ("Centro");
(ii) DSC's 75 percent interest in Clusters Inmobiliaria de Ixtapa, S.A. de C.V.
("Clusters Ixtapa"); (iii) a promissory note ("Clusters Note") in the principal
amount of $5,628,426 of Clusters Ixtapa; (iv) DSC's 30 percent interest in Nueva
Tierra, S.A. de C.V. ("Nueva Tierra"); and (v) Hemisphere's 100 percent interest
in Newland Corporation, which, in turn, holds a 70 percent interest in Nueva
Tierra. Nueva Tierra owns a majority interest and is the general partner of the
following real estate Asociacion en Participacion ("Participating
Associations"), a form of limited partnership in Mexico: (x) Villas Del Carbon;
(y) Hacienda del Franco; and (z) Bahia de Cortes. The assets acquired by the
Company are collectively referred to herein as the "Assets."
In exchange for the Assets, the Company issued to DSC on the Closing
Date 485,930 shares of the Company's Common Stock and a Convertible Promissory
Note (the "DSC Note") in the principal amount of $4,858,828 convertible into
52,875,030 shares of the Common Stock. The Company issued to Hemisphere on the
Closing Date 514,070 shares of Common Stock and a Convertible Promissory Note
("Hemisphere Note") in the principal amount of $4,848,558 convertible into
52,763,270 shares of Common Stock.
The Company may force the conversion of the DSC and Hemisphere Note
after the Company's Certificate of Incorporation has been amended to increase
the number of authorized shares of Common Stock from 10,000,000 to 450,000,000.
The Company intends to amend its Certificate of Incorporation with the State of
Delaware as soon as possible after the expiration of the twenty day period
following the mailing of an Information Statement to stockholders. The Company
anticipates that, at the earliest, the authorized Common Stock will be increased
and the DSC and Hemisphere Notes converted to Common Stock during the fourth
quarter of 1997. The DSC and Hemisphere Notes are secured by the Assets and
matures on January 1, 1998.
The Amended and Restated Agreement provides that DSC will make $300,000
in working capital advances to the Company. DSC made approximately $195,000 of
such advances to the Company as of the Closing Date and approximately $295,000
as of the date hereof. The amount of such advances have been added to the amount
of the capital contributed to the Company in Transaction.
The shares of Common Stock issued to DSC and Hemisphere on the Closing
Date and upon conversion of the DSC and Hemisphere Note have and will be issued
by the Company in reliance on the exemption from registration under the
Securities Act of 1933 provided by Regulation S. The Agreement provides that the
shares of Common Stock issued to DSC will be afforded certain demand and
piggyback registration rights.
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<PAGE> 5
On the Closing Date, John Day, Geoffrey Bell and Jack Birnholz resigned
from the Company's Board of Directors and the remaining members of the
Board--Richard Bradbury and Alton Hollis--appointed Bernardo Dominguez C. (the
President of DSC) to fill a vacancy on the Company's Board of Directors. Pablo
Macedo was elected Secretary of the Company on the Closing Date.
DSC ASSETS
The DSC Assets consist of: (i) 100 percent equity interest in Centro;
(ii) 75 percent equity interest in Clusters Ixtapa; (iii) a note receivable in
the principal amount of $5,628,426; and (iv) DSC's 30 percent interest in Nueva
Tierra. For information regarding Nueva Tierra, see below under the caption
"Hemisphere /Nueva Tierra Assets."
Centro, a company formed under the laws of Mexico on March 13, 1989,
owns land located in Acapulco, Mexico, known as Campo de Tiro. The eight-acre,
partially developed property is being held for future development and is subject
to a mortgage (including accrued interest) in the approximate amount of
$659,508, as of June 30, 1996.
Clusters Ixtapa, a company formed under the laws of Mexico on July 24,
1991, owns land in Ixtapa on the pacific coast of Mexico in the state of
Guerrero. The 26-acre property is being held for development. Clusters Ixtapa
has received loans in the principal amount of $23,007,000 (the "NAFIN Debt")
from its lender, Nacional Financiera, S.N.C. ("NAFIN"). On December 29, 1995,
Clusters Ixtapa, DSC and NAFIN entered into a restructuring plan with respect to
the NAFIN Debt. The Company is not a party to the DSC and NAFIN restructuring
plan. Pursuant to the restructuring plan, DSC has assumed the NAFIN Debt in
exchange for Clusters Ixtapa's payment of approximately $15,341,000 and DSC's
payment of the difference. DSC has advised the Company that, pursuant to such
restructuring plan, it will repay such amount, as well as certain other debt of
DSC to NAFIN, through the transfer from DSC to NAFIN of approximately 15,991,000
shares of the Company's Common Stock upon the conversion of the DSC Note.
Pursuant to the DSC Transaction, the Company acquired from DSC a $5,628,426 debt
obligation of Clusters Ixtapa on the Closing Date.
HEMISPHERE ASSETS
The Hemisphere Assets consist of Hemisphere's 100 interest in Newland,
which, in turn, holds a 70 percent interest in Nueva Tierra. Nueva Tierra assets
consist of a majority interest in three real estate projects in Mexico, as set
forth below.
Villas del Carbon, a Participating Association formed under the laws of
Mexico on January 19, 1996, owns a residential development located in Villa del
Carbon, State of Mexico, in which Nueva Tierra has a 79.08 percent interest. The
24-acre property, which is presently being held by the Company for future
development, is partially developed and presently has a clubhouse, roads and
utility lines to the property boundary. Preliminary development plans call for
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<PAGE> 6
development of 180 home sites for sale to builders or individuals who wish to
construct weekend country houses. This property is not subject to any mortgage.
Hacienda del Franco, a Participating Association formed under the laws
of Mexico on January 10, 1996, owns a residential development project located
near Silao in the State of Guanajuato, in which Nueva Tierra has a 81.13 percent
interest. The property consists of approximately 236 acres of land and includes
a traditional colonial style hacienda. The property is being held for future
development centered around the hacienda. The property is subject to a mortgage
(including accrued interest) in the amount of $550,602, as of June 30, 1996.
Bahia de Cortez, a Participating Association formed under the laws of
Mexico on February 7, 1996, owns a resort development project located in Baja
California near La Paz, in which Nueva Tierra has a 77.89 percent interest. The
property, which is being held for future development, consists of approximately
3,451 acres of land, including over five kilometers of beachfront property. The
property is not subject to any mortgage.
CHANGE IN CONTROL OF COMPANY
A change in control of the Company will occur upon the conversion of
the DSC and Hemisphere Notes. At such time, DSC will own approximately
53,360,960 shares of Common Stock or 46.2 percent of the then outstanding shares
of Common Stock, and Hemisphere will own approximately 53,277,340 shares of
Common Stock or 46.1 percent of the then outstanding Common Stock. The DSC
percentage includes the 15,991,000 shares of Common Stock (approximately 14.2
percent) that DSC intends to subsequently transfer to NAFIN. As a result, DSC
and Hemisphere will be in a position to determine the outcome for the election
of directors and thereby control the Company. The change in control is expected
to occur during the fourth quarter of 1997. At such time, approximately
115,592,487 shares of Common Stock will be issued and outstanding.
The Company intends to call a special meeting of the stockholders after
the conversion of the DSC and Hemisphere Notes to elect three to five directors,
one of which will be designated by Hemisphere, one of which will be designated
by the Company, and the remainder will be designated by DSC.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
NEWLAND CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS-Six Months Ended June 30, 1996
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Shareholders' Equity
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Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.
COMBINED FINANCIAL STATEMENTS - Years Ended December 31, 1995 and 1994
Independent Auditors Report
Combined Balance Sheet
Combined Statements of Operations
Combined Statements of Shareholders' Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.
COMBINED FINANCIAL STATEMENTS - Six Months Ended June 30, 1996 and 1995
Combined Balance Sheet
Combined Statements of Operations
Combined Statements of Shareholders' Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
b. Pro Forma Financial Information
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS - June 30, 1996
Introduction
Condensed Pro Forma Combined Balance Sheet, June 30, 1996
Condensed Pro Forma Combined Statements of Operations
Notes to Condensed Pro Forma Combined Financial Statements
c. Exhibits
99.1 Amendment to Agreement, dated July 31, 1996, between the
Company and Hemisphere Developments, Limited.*
99.2 Convertible Note, dated as of August 19, 1996, in favor
of Hemisphere Developments, Limited.*
99.3 Second Amendment to Agreement, dated July 31, 1996,
between the Company and DSC, S.A. de C.V.*
99.4. Memorandum, dated August 19, 1996, between the Company
and DSC, S.A. de C.V.*
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<PAGE> 8
99.5 Convertible Note, dated as of August 19, 1996, in favor
of DSC, S.A. de C.V.*
99.6 Convertible Note, dated as of August 19, 1996, in favor
of DSC, S.A. de C.V.*
99.7 Proxy, dated July 31, 1996, between DSC S.A. de C.V and
Jack Birnholz.*
99.8 Proxy, dated July 31, 1996, between DSC S.A. de C.V and
Richard Bradbury.*
99.9 Assignment Agreement, dated August 15, 1996, between the
Company, DSC S.A. de C.V. and Clusters Inmobiliaria de Ixtapa, S.A. de C.V.*
99.10 Amended and Restated Agreement, dated as August 19,
1996, between the Company, DSC S.A. de C.V. and Hemisphere Developments,
Limited.
99.11 Convertible Note, dated as of August 19, 1996, in favor
of DSC, S.A. de C.V.
99.12 Convertible Note, dated as of August 19, 1996, in favor
of Hemisphere Developments, Limited.
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*Previously filed as an exhibit to this Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL REALTY GROUP, INC.
(Registrant)
Date: November 21, 1997 By: /s/ Richard Bradbury
------------------------------
Richard Bradbury, President
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NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMEENT STAGE
CONSOLIDATED BALANCE SHEET - JUNE 30, 1996
(UNAUDTED)
<TABLE>
<S> <C>
ASSETS:
Real estate, at cost
Property held for future development $ 609,600
=========
LIABILITIES:
Mortgage and note payable $ 483,600
Accrued liabilities
67,000
---------
Total liabilities 550,600
---------
MINORITY INTEREST
26,500
---------
SHAREHOLDER'S EQUITY:
Common stock; no par, 500 shares authorized, issued
and outstanding, at stated value
500
Capital in excess of stated value
60,000
Accumulated deficit
(28,000)
---------
32,500
---------
$ 609,600
=========
</TABLE>
Read the accompanying notes to consolidated financial statements, which are an
integral part of this consolidated financial statement.
<PAGE> 10
NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
Other expenses:
Losses on exchange rate fluctuations $ 9,900
Interest 39,400
--------
Loss before minority interest 49,300
Minority interest in loss of subsidiaries 21,300
--------
Net loss $(28,000)
========
Read the accompanying notes to consolidated financial statements,
which are an integral part of this consolidated financial statement.
<PAGE> 11
NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------- EXCESS OF ACCUMULATED
TOTAL SHARES AMOUNT STATED VALUE DEFICIT
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 500 500 $500 $ -- $ --
Special allocation of limited associates equity
transferred to general associate 60,000 $60,000
Net loss (28,000) (28,000)
---------------------------------------------------------
Balance, ending $ 32,500 500 $500 $60,000 $(28,000)
=========================================================
</TABLE>
Read the accompanying notes to consolidated financial statements, which are an
integral part of this consolidated financial statement.
<PAGE> 12
NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMEENT STAGE
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDTED)
<TABLE>
<S> <C>
Cash Flows from operating activities:
Net loss $(28,000)
--------
Adjustment to reconcile net loss to cash provided by operating activities:
Losses on exchange rate of fluctuations
9,900
Minority interest in loss of subsidiaries (21,300)
Increase in accrued interest 39,400
--------
Total Adjustments 28,000
--------
Cash provided by operating activities
$ -0-
========
Reconciliation of noncash financing activities:
Special allocation of limited associates equity transferred
to the general associate $ 60,000
========
</TABLE>
Read the accompanying notes to consolidated financial statements, which are an
integral part of this consolidated financial statement.
<PAGE> 13
NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and material subsidiaries under common control. All
intercompany accounts and transactions have been eliminated in
consolidation.
BASIS OF ACCOUNTING:
The Company prepares its financial statements in accordance with
generally accepted accounting principles in the United States,
expressed in United States dollars. This basis of accounting involves
the application of accrual accounting; consequently, revenues and gains
are recognized when earned, and expenses and losses are recognized when
incurred. Financial statement items are recorded at historical cost and
may not necessarily represent current values.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of accrued liabilities approximate its fair value
because of the short duration of the instrument.
FOREIGN CURRENCY TRANSLATION:
The functional currency of the companies is the U.S. dollar. Therefore,
all peso denominated transactions represent foreign currency
transactions. Foreign currency transaction gains and losses are
included in determining net income.
LAND HELD FOR DEVELOPMENT:
Land held for development is stated at cost. When the project commences
construction, interest will be capitalized. Interest is not capitalized
during material delays.
INCOME TAXES:
Income taxes are accounted for by the asset/liability method. Deferred
taxes represent the expected future tax benefits/consequences when the
reported amounts of assets and liabilities are recovered or paid. They
arise from differences between the financial reporting and the tax
bases of assets and liabilities and are adjusted for changes in tax
laws and rates when those changes are enacted.
<PAGE> 14
NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
2. ORGANIZATION AND BUSINESS:
Newland Corporation was formed on December 12, 1995 pursuant to the laws of
the Republic of the Marshall Islands and is deemed in the development
stage. The Company's sole asset is its 70% investment in Nueva Tierra, S.A.
de C.V. which had no activity until 1996 ("Nueva Tierra"). Nueva Tierra
owns general interests in three participating associations in Mexico. These
associations are similar to a limited partnership. The Associations will
remain in existence until 2026, unless termination is accelerated in
accordance with the agreement. The associations will develop property into
commercial, residential, and resort hotel lodging.
The participating associations were formed in 1996 and are in the
development stage. Upon formation of the associations, the limited
associates contributed real property to the associations at historical
cost. As consideration for Nueva Tierra's ability to develop, market,
finance and operate the property, the limited associates agreed to share
the profits and losses of the association based upon certain ratios on a
per project basis. The limited associates further agreed to allocate a
certain portion of their capital to the capital account of the general
associate. The profit and loss ratios are approximately 80% and 20% to the
general and limited associates, respectively.
The Company will cease to be in the development stage once the
participating associations obtain financing and commence development of the
projects.
3. LAND HELD FOR DEVELOPMENT:
<TABLE>
<CAPTION>
Location Acreage Amount
-------- ------- ------
<S> <C> <C>
Guanajuato, Mexico 236 $ 547,200
Jilotepec, Mexico 24 43,100
La Paz, Mexico 3,451 19,300
---------
$ 609,600
=========
</TABLE>
Included in the cost of land are improvements totaling $460,000. The land
in Guanajuato is collateralized to mortgage and note payable.
4. MORTGAGE AND NOTE PAYABLE:
<TABLE>
<S> <C>
Mortgage note, bank, interest at 4.5% per annum over the Inflation Rate
Index of Mexico, maturing
in 2007, collateralized by real property $ 457,000
Note payable, bank, interest at the Average bank deposit rate (5.2%) per
annum with principal reductions commencing during 1998 and
maturing in 2007 26,600
-----------
$ 483,600
===========
</TABLE>
<PAGE> 15
NEWLAND CORPORATION AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
4. MORTGAGE AND NOTE PAYABLE (CONTINUED):
Maturities of mortgage and note payable, subsequent to June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Twelve Months
Ended
June 30, Amount
-------------- ------
<S> <C>
1997 $ 26,500
1998 45,700
1999 45,700
2000 45,700
2001 45,700
Thereafter 274,300
--------
483,600
========
</TABLE>
5. INCOME TAXES:
The Company requires recognition of income tax benefits for loss
carryforwards, credit carryforwards and certain temporary differences for
which tax benefits have not been previously recorded. The tax benefits
recognized must be reduced by a valuation allowance where it is more likely
than not that the benefits may not be realized.
Deferred tax asset balances were primarily the result of new operating loss
carryforwards. There are no deferred tax liability balances.
It is more likely than not that all future tax benefits will not be
realized therefore, a valuation allowance has been recorded for the
deferred net tax assets. There was no prior balance in the valuation
allowance.
As of June 30, 1996, the Company has a net operating loss carryforward of
approximately $28,000 that may be used to offset future taxable income expiring
in varying years to 2005.
<PAGE> 16
Board of Directors and Shareholders
Clusters Inmobiliaria de Ixtapa, S.A. de C.V. and
Centro de Promociones Guerrero, S.A. de C.V.
Mexico City, Mexico
We have audited the accompanying combined balance sheets of Clusters
Inmobiliaria de Ixtapa, S.A. de C.V. and Centro de Promociones Guerrero, S.A. de
C.V. (subsidiaries of Clusters, S.A. de C.V.), as of December 31, 1995 and 1994
and the related combined statements of operations, shareholders' equity and cash
flows for the years then ended. As described in Note 1 of Notes to combined
financial statements, the accompanying combined financial statements have been
prepared on the basis of accounting principles generally accepted in the United
States, expressed in United States Dollars. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, in the United States and Mexico. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the 1995 and 1994 combined financial
statements referred to above present fairly, in all material respects, the
combined financial position of Clusters Inmobiliaria de Ixtapa, S.A. de C.V. and
Centro de Promociones Guerrero, S.A. de C.V. (subsidiaries of Clusters, S.A. de
C.V.) as December 31, 1995 and 1994 and the results of its combined operations
and its combined cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ C.P Guillermo Gonzalez Macin
Mexico, D.F.
March 13, 1996
<PAGE> 17
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V., AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.,
COMBINED BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
<TABLE>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS:
Real estate, at cost
Property held for future development $ 9,458,500 $ 9,458,500
Receivables:
Due from affiliates 1,658,400 3,934,500
Investment in securities -- 1,247,200
Cash and cash equivalents 100 600
Other assets 476,600 428,300
----------- -----------
$11,593,600 $15,069,100
=========== ===========
LIABILITIES:
Mortgage and note payable $ 625,800 $ 7,200,300
Due to affiliates 5,506,400 1,414,000
Accounts payable 126,200 201,500
Accrued and other liabilities 89,000 711,500
----------- -----------
Total liabilities 6,347,400 9,527,300
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock
Cluster Inmobiliaria de Ixtapa, S.A. de C.V., no par
value; 50,158,160 shares authorized, issued and
outstanding at stated value 8,795,900 8,795,900
Centro de Promociones Guerrero, S.A. de C.V., no
par value; 1,531,000 shares authorized, issued
and outstanding at stated value 461,000 461,000
Capital in excess of stated value 570,900 --
Accumulated deficit (4,581,600) (3,715,100)
----------- -----------
5,246,200 5,541,800
----------- -----------
$11,593,600 $15,069,100
=========== ===========
</TABLE>
Read the accompanying notes to combined financial statements,
which are an integral part of this combined financial statement.
<PAGE> 18
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V., AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.,
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Other income (expense):
Interest income $ 7,031,900 $ 3,088,700
Interest expense (9,372,700) (4,242,200)
Gains on exchange rate fluctuations 1,458,700 1,290,500
Other (600) (37,600)
----------- -----------
Income (loss) before provision for income tax benefit: (882,700) 99,400
Provision for income tax benefit (16,200) --
----------- -----------
Net income (loss) $ (866,500) $ 99,400
=========== ===========
</TABLE>
Read the accompanying notes to combined financial statements,
which are an integral part of this combined financial statement.
<PAGE> 19
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------- EXCESS OF ACCUMULATED
TOTAL SHARES AMOUNT STATED VALUE DEFICIT
----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 5,442,400 51,689,160 $ 9,256,900 $ -- $(3,814,500)
Add:
Net income 99,400 99,400
-----------------------------------------------------------------------------
Balance, December 31, 1994 5,541,800 51,689,160 9,256,900 -- $(3,715,100)
Add (deduct):
Gain on sale of related parties
securities to related parties 570,900 570,900
Net loss (866,500) (866,500)
-----------------------------------------------------------------------------
Balance, ending $ 5,246,200 51,689,160 $ 9,256,900 $ 570,900 $(4,581,600)
=============================================================================
</TABLE>
Read the accompanying notes to combined financial statements, Which are an
integral part of this combined financial statement.
<PAGE> 20
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V., AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.,
COMBINED STATEMENTS OF STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (866,500) $ 99,400
Gains on exchange rate fluctuations (1,458,700) (1,290,500)
Decrease (increase) in other assets (49,500) 260,800
Decrease in accounts payable (77,700) (48,600)
Increase (decrease) in accrued and other liabilities 2,325,200 1,235,100
-----------------------------
Cash provided by (used in) operating activities (127,200) 256,200
-----------------------------
Cash flows from investing activities:
Purchase of related party securities (1,247,200)
Proceeds from sale of related party securities 1,818,100
-----------------------------
Cash provided by (used in) investing activities 1,818,100 (1,247,200)
-----------------------------
Cash flows from financing activities:
Payments on mortgage and note (6,797,500) --
Payments to related parties (1,844,500) (314,100)
Advances from related parties 6,950,600 1,305,500
-----------------------------
Cash provided by (used in) financing activities (1,691,400) 991,400
-----------------------------
Increase (decrease) in cash and cash equivalents (500) 400
Cash and cash equivalents, beginning 600 200
-----------------------------
Cash and cash equivalents, ending $ 100 $ 600
=============================
Interest paid 2,340,800 --
=============================
Income taxes paid -- --
=============================
</TABLE>
Read the accompanying notes to combined financial statements, Which are an
integral part of this combined financial statement.
<PAGE> 21
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION:
The combined financial statements include the operations of Clusters
Inmobiliaria de Ixtapa, S.A. de C.V. ("Clusters Ixtapa") and Centro de
Promociones Guerrero, S.A. de C.V. ("Centro"). All intercompany
accounts and transactions have been eliminated in combination.
BASIS OF ACCOUNTING:
Clusters Ixtapa and Centro prepares its financial statements in
accordance with generally accepted accounting principles in the United
States, expressed in United States dollars. This basis of accounting
involves the application of accrual accounting; consequently, revenues
and gains are recognized when earned, and expenses and losses are
recognized when incurred. Financial statement items are recorded at
historical cost and may not necessarily represent current values.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of the companies is the U.S. dollar. Therefore,
all peso denominated transactions represent foreign currency
transactions. Foreign currency transaction gains and losses are
included in determining net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their fair values
because of the short duration of these instruments.
CASH AND EQUIVALENTS:
All highly liquid debt instruments purchased with an initial maturity
of three months or less are considered to be cash equivalents.
REAL ESTATE HELD FOR FUTURE DEVELOPMENT:
Real estate held for future development consists of undeveloped and
partially developed land and is carried at the lower cost or net
realizable value. Construction costs, including interest charges, are
capitalized while the project is under development. No substantial
construction has occurred in 1994 or 1995 and interest has not been
capitalized since construction ceased.
INCOME TAXES:
Income taxes are accounted for by the asset/liability method. Deferred
taxes represent the expected future tax benefits/consequences when the
reported amounts of assets and liabilities are recovered or paid. They
arise from differences between the financial reporting and the tax
bases of assets and liabilities and are adjusted for changes in tax
laws and rates when those changes are enacted.
<PAGE> 22
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. ORGANIZATION AND BUSINESS:
Clusters Ixtapa and Centro were incorporated on July 24, 1991 and March 13,
1989, respectively under the laws of Mexico. Since formation, the companies
have acquired real property, which will be developed into residential and
commercial properties to be subsequently sold.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject Clusters Ixtapa and Centro
to concentrations of credit risk consist principally of amounts due from
affiliates. The government of Mexico guarantees account balances with
financial institutions. Clusters Ixtapa and Centro have transactions with
related parties and generally do not require collateral. In the opinion of
management, there is no additional credit risk inherent in amounts due from
affiliates.
4. LAND HELD FOR DEVELOPMENT:
Land held for development is as follows:
<TABLE>
<CAPTION>
Location Acreage 1995 1994
-------- ------- ---- ----
<S> <C> <C> <C>
Ixtapa,Mexico 26 $ 9,054,900 9,054,900
Acapulco, Mexico 8 403,600 403,600
-----------
$ 9,458,500 $ 9,458,500
============ ===========
</TABLE>
Land was acquired under trust rights, which give the holder exclusive use
and ownership of the property. The rights are valid for thirty years and
are renewable at no cost. Trust rights can be used to collateralized debt
or be hypothecated in any form.
A related party originally acquired the trust rights in Ixtapa for
$8,792,700 in 1990. During October 1991, Clusters Ixtapa acquired the trust
rights from the related party for $9,054,900.
The property in Acapulco was acquired for $214,200 plus $189,300 of
construction in process. The property held for development is
collateralized to mortgage note, bank.
<PAGE> 23
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. MORTGAGE AND NOTE PAYABLE:
Note payable, governmental agency:
On July 2, 1992, Nacional Financiera, S.N.C. (NAFIN), a Mexican
governmental agency, entered into an agreement with Clusters Ixtapa for
the issuance of medium term promissory notes, which were guaranteed by
NAFIN and DSC. In accordance with the NAFIN agreement, Clusters Ixtapa
issued promissory notes of $23,007,000, with interest at five and a
quarter percent (5.25%) plus the inflation rate of Mexico, maturing on
July 10, 1995. All proceeds from the promissory notes were invested in
NAFIN fixed income securities. All interest earned through NAFIN accrue
to the benefit of Clusters Ixtapa which is utilized to partially
liquidate the promissory notes. As of December 31, 1994, the promissory
note and accrued interest and NAFIN fixed income securities and accrued
interest amounted to $19,595,700 and $13,201,300 respectively.
At maturity date, Clusters Ixtapa could not liquidate its debt and the
mortgage note holder exercised its guarantee against NAFIN. NAFIN
liquidated the mortgage notes and commenced debt restructuring with
Clusters Ixtapa and its guarantors. Under the restructuring agreement
between DSC, Clusters Ixtapa, and NAFIN, DSC acquired the note from
NAFIN and the note became payable to DSC. NAFIN has no recourse against
Clusters Ixtapa. In addition DSC and Clusters Ixtapa agreed to convert
the note into a dollar denominated obligation. The obligation is
included in due to affiliates and is non-interest bearing as of
December 31, 1995. No gain or loss was recognized.
Mortgage note, bank:
In 1996, Centro had a trouble debt restructuring involving a
modification of terms. The interest rate changed from 6% over the
average Bank Deposit Rate in Mexico to a non-interest-bearing note. No
gain or loss was recognized. The note is due March 1998 and
collateralized by land and construction in process with net book value
of $403,600. Balance at December 31, 1995 and 1994 was $625,800 and
$805,900, respectively.
6. DUE FROM/ TO AFFILIATES:
Various related entities are engaged in transactions including, but not
limited to, short-term advances to cover operating costs and working
capital. All such transactions are with entities related to DSC and are
recorded in separate accounts that comprise the amounts due from affiliates
and amounts due to affiliates. Balances due from or to the related parties
as a result of these transactions are non-interest bearing and unsecured.
In the opinion of management, the realization of amounts due from
affiliates and the payment of amounts due to affiliates will be
realized/liquidated during the normal course of business.
<PAGE> 24
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. AND
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.
SUMMARY OF SIGNIFICANT ACCONTING POLICIES AND
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. INVESTMENT IN SECURITIES, AFFILIATES:
Clusters Ixtapa and Centro had acquired the common stock of three related
parties at a cost of $1,247,100. These securities were sold to a related
party for $1,818,000 resulting in a gain of $570,900. The gain has been
credited to shareholders' equity as capital in excess of stated value,
since the purchase and sale were between related parties.
8. INCOME TAXES:
Clusters Ixtapa and Centro requires recognition of income tax benefits for
loss carryforwards, credit carryforwards and certain temporary differences
for which tax benefits have not been previously recorded. The tax benefits
recognized must be reduced by a valuation allowance where it is more likely
than not that the benefits may not be realized.
Deferred tax asset balances were primarily the result of new operating loss
carryforwards. There are no deferred tax liability balances.
It is more likely than not that all, except $16,200 as of December 31,
1995, future tax benefits will not be realized; therefore, a valuation
allowance has been recorded for the deferred net tax assets. The valuation
allowance increased from 49,400 to 135,800 from December 31, 1994 to
December 31, 1995.
As of December 31, 1996, Clusters Ixtapa and Centro has a net operating
loss carryforward of approximately $473,500 that may be used to offset
future taxable income expiring in varying years to 2005.
9. CONTINGENCY:
During 1994 the Mexican peso was permitted to float against the U.S. dollar
and other currencies. As a result, the peso devalued from $3.4662
pesos/dollar to approximately $3.9413 pesos/dollar. It is not possible to
determine the effect the devaluation will have upon future pricing or
costs; however, it is management's opinion that the devaluation will not
have a material adverse effect upon Clusters Ixtapa and Centro's future
operations.
<PAGE> 25
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V.,
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.,
AND 30% INVESTMENT IN NUEVA TIERRA, S.A. DE C.V.
COMBINED BALANCE SHEETS - JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Real estate, at cost
Property held for future development $ 9,458,500 $ 9,458,500
Receivables:
Due from affiliates 2,159,500 4,950,200
Cash and cash equivalents 17,800 100
Investment in unconsolidated subsidiary 13,900 --
Other assets 33,000 427,200
----------- -----------
$11,682,700 $14,836,000
=========== ===========
LIABILITIES:
Mortgage and note payable $ 659,000 $ 7,914,000
Due to affiliates 5,629,700 1,168,400
Accounts payable 128,900 166,400
Accrued and other liabilities 126,100 706,000
----------- -----------
Total liabilities 6,543,700 9,955,000
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock
Cluster Inmobiliaria de Ixtapa, S.A. de C.V., no par
value; 50,158,160 shares authorized, issued and
outstanding at stated value 8,795,900 8,795,900
Centro de Promociones Guerrero, S.A. de C.V., no
par value; 1,531,000 shares authorized, issued
and outstanding at stated value 461,000 461,000
Capital in excess of stated value 596,800 570,900
Accumulated deficit (4,714,700) (4,946,800)
----------- -----------
5,139,000 4,881,000
----------- -----------
$11,682,700 $14,836,000
=========== ===========
</TABLE>
Read the accompanying notes to combined financial statements,
which are an integral part of this combined financial statement.
<PAGE> 26
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V.,
CENTRO DE PROMOCIONES GUERRERO, S.A. DE C.V.,
AND 30% INVESTMENT IN NUEVA TIERRA, S.A. DE C.V.
COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Other income (expense):
Interest income $ 56,400 $ 3,774,500
Interest (20,000) (5,770,000)
Equity in loss of Nueva Tierra (12,100) --
Gains (losses) on exchange rate fluctuations (88,100) 765,300
Other (53,100) (1,500)
--------- -----------
Income (loss) before provision for income taxes (116,900) (1,231,700)
Provision for income taxes 16,200 --
--------- -----------
Net loss $(133,100) $(1,231,700)
========= ===========
</TABLE>
Read the accompanying notes to combined financial statements,
which are an integral part of this combined financial statement.
<PAGE> 27
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V., CENTRO DE
PROMOCIONES GUERRERO, S.A. DE C.V., AND 30% INVESTMENT IN NUEVA TIERRA, S.A.
DE C.V.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------ EXCESS OF ACCUMULATED
TOTAL SHARES AMOUNT STATED VALUE DEFICIT
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 5,541,800 51,689,160 $9,256,900 $ - $(3,715,100)
Add (deduct):
Net loss (1,231,700) (1,231,700)
Gain on sale of related parties
securities to related parties 570,900 570,900
----------- ---------- ---------- -------- -----------
Balance, June 30, 1995 $ 4,881,000 51,689,160 $9,256,900 $570,900 $(4,946,800)
=========== ========== ========== ======== ===========
Balance, December 31, 1995 $ 5,246,200 51,689,160 $9,256,900 $570,900 $(4,581,600)
Add (deduct):
Special allocation of limited associates
transferred to general associate 25,900 25,900
Net loss (133,100) -- (133,100)
----------- ---------- ---------- -------- -----------
Balance, June 30, 1996 $ 5,139,000 51,689,160 $9,256,900 $596,800 $(4,714,700)
=========== ========== ========== ======== ===========
</TABLE>
Read the accompanying notes to combined financial statements, which
are an integral part of this combined financial statement.
<PAGE> 28
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V., CENTRO DE
PROMOCIONES GUERRERO, S.A. DE C.V., AND 30% INVESTMENT IN NUEVA TIERRA, S.A.
DE C.V.
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(133,100) $(1,231,700)
(Gains) losses on exchange rate fluctuations 88,100 (765,300)
Loss from unconsolidated subsidiary 12,100 --
Decrease in other assets 477,900 --
Increase (decrease) in accounts payable 2,600 (1,800)
Increase in accrued and other liabilities 32,900 1,997,000
--------- -----------
Cash provided by (used in) operating activites 480,500 (1,800)
--------- -----------
Cash flow provided by investing activities:
Proceeds from sale of related party securities -- 1,818,100
--------- -----------
Cash flows used in from financing activities:
Payments to related parties (462,800) (1,816,800)
--------- -----------
Cash used in financing activities (462,800) (1,816,800)
--------- -----------
Increase (decrease) in cash and cash equivalents 17,700 (500)
Cash and cash equivalents, beginning 100 600
--------- -----------
Cash and cash equivalents, ending $ 17,800 $ 100
========= ===========
Interest paid -- --
========= ===========
Income taxes paid -- --
========= ===========
Supplemental schedule of non-cash activities:
Special allocation of limited associates
transferred to general associate $ 25,900
=========
</TABLE>
Read the accompanying notes to combined financial statements, which are an
integral part of this combined financial statement.
<PAGE> 29
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. , CENTRO DE
PROMOCIONES GUERRERO, S.A. DE C.V., AND 30% INVESTMENT
IN NUEVA TIERRA, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION:
The combined financial statements include the operations of Clusters
Inmobiliaria de Ixtapa, S.A. de C.V. ("Clusters Ixtapa") and Centro de
Promociones ("Centro") and DSC, S.A. de C.V.'s ("DSC") 30% interest in
Nueva Tierra, S.A. de C.V. Clusters Ixtapa and Centro are owned 75% and
100%, respectively by DSC. All intercompany accounts and transactions
have been eliminated in combination.
BASIS OF ACCOUNTING:
Clusters Ixtapa and Centro prepares its financial statements in
accordance with generally accepted accounting principles in the United
States, expressed in United States dollars. This basis of accounting
involves the application of accrual accounting; consequently, revenues
and gains are recognized when earned, and expenses and losses are
recognized when incurred. Financial statement items are recorded at
historical cost and may not necessarily represent current values.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of the companies is the U.S. dollar. Therefore,
all peso denominated transactions represent foreign currency
transactions. Foreign currency transaction gains and losses are
included in determining net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their fair values
because of the short duration of these instruments.
CASH AND EQUIVALENTS:
All highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents.
REAL ESTATE HELD FOR DEVELOPMENT:
Real estate held for future development consists of undeveloped and
partially developed land and is carried at the lower of cost or net
realizable value. Construction costs, including interest charges are
capitalized while the project is under development. No substantial
construction has occurred in 1995 or 1996 and interest has not been
capitalized since construction ceased.
INVESTMENTS:
Investments consist of a 30% interest in Nueva Tierra, S.A. de C.V. and
are accounted for under the equity method of accounting. The cost is
adjusted for its share of the earnings and losses of Nueva Tierra, S.A.
de C.V.
INCOME TAXES:
Income taxes are accounted for by the asset/liability method. Deferred
taxes represent the expected future tax benefits/consequences when the
reported amounts of assets and liabilities are recovered or paid. They
arise from differences between the financial reporting and the tax
bases of assets and liabilities and are adjusted for changes in tax
laws and rates when those changes are enacted.
<PAGE> 30
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. , CENTRO DE
PROMOCIONES GUERRERO, S.A. DE C.V., AND 30% INVESTMENT
IN NUEVA TIERRA, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
2. ORGANIZATION AND BUSINESS:
Clusters Ixtapa and Centro were incorporated on July 24, 1991 and March 13,
1989, respectively under the laws of Mexico. Since formation, the companies
have acquired real property, which will be developed into residential and
commercial properties to be subsequently sold.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject Clusters Ixtapa and Centro
to concentrations of credit risk consist principally of amounts due from
affiliates. The government of Mexico guarantees Clusters Ixtapa and
Centro's account balances with financial institutions. Clusters Ixtapa and
Centro has a large number of transactions with related parties and
generally does not require collateral. It is management's opinion there is
no credit risk inherent to amounts due from affiliates.
4. LAND HELD FOR DEVELOPMENT:
<TABLE>
<CAPTION>
Location Acreage 1996 1995
-------- ------- ---- ----
<S> <C> <C> <C>
Ixtapa, Mexico 26 $ 9,054,900 9,054,900
Acapulco, Mexico 8 403,600 403,600
-------------- -------------
$ 9,458,500 $ 9,458,500
============== =============
</TABLE>
Land was acquired under trust rights. Trust rights gives the holder
exclusive use and ownership of the property. The rights are valid for
thirty years and are renewable each thirty years at no cost. Trust rights
can be used to collateralized debt or be hypothecated in any form.
A related party originally acquired the trust rights in Clusters Ixtapa for
$8,792,700 in 1990. During October, 1991 Clusters Ixtapa acquired the trust
rights from the related party for $9,054,900
The property in Acapulco was acquired for $214,300 plus $189,300 of
construction in process. This property is collateralized to mortgage note,
bank.
<PAGE> 31
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. , CENTRO DE
PROMOCIONES GUERRERO, S.A. DE C.V., AND 30% INVESTMENT
IN NUEVA TIERRA, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
5. MORTGAGE AND NOTE PAYABLE:
Note payable, governmental agency:
On July 2, 1992, Nacional Financiera, S.N.C. (NAFIN), a Mexican
governmental agency, entered into an agreement with Clusters Ixtapa for
the issuance of medium term promissory notes, which were also
guaranteed by NAFIN and DSC. In accordance with the NAFIN agreement,
Clusters Ixtapa issued promissory notes of $23,007,000, with interest
at five and a quarter percent (5.25%), plus the inflation rate of
Mexico, maturing on July 10, 1995. All proceeds from the promissory
notes were invested in NAFIN fixed income securities. All interest
earned through NAFIN accrue to the benefit of Clusters Ixtapa which was
utilized to partially liquidate the promissory notes. As of June 30,
1995, the promissory notes and accrued interest and NAFIN fixed income
securities and accrued interest amounted to $21,676,500 and
$14,534,200, respectively.
At maturity date, Clusters Ixtapa could not liquidate its debt and the
mortgage note holder exercised its guarantee against NAFIN. NAFIN
liquidated the mortgage notes and commenced debt restructuring with
Clusters Ixtapa and its guarantors. Under the restructuring agreement,
DSC acquired the note from NAFIN and the note became payable to DSC.
NAFIN has no recourse against Clusters Ixtapa. In addition, DSC and
Clusters Ixtapa agreed to convert the note into a dollar denominated
obligation. The obligation is included in due to affiliates and is non
interest bearing as of December 31, 1995. No gain or loss was
recognized.
Mortgage note, bank:
In 1996, Centro had a trouble debt restructuring involving a
modification of terms. The interest rate changed from 6% over the
average Bank Deposit Rate in Mexico to a non-interest bearing note. No
gain or loss was recognized. The note is due March 1998 and
collateralized by land and construction in process with net book value
of $403,600. Balance as of June 30, 1996 and 1995, including accrued
interest was $659,000 and $771,900, respectively.
6. DUE FROM/ TO AFFILIATES:
Various related entities are engaged in transactions including, but not
limited to, short-term advances to cover operating costs and working
capital. All such transactions are with entities related to DSC and are
recorded in separate accounts that comprise the amounts due from affiliates
and amounts due to affiliates. Balances due from or to the related parties
as a result of these transactions are non-interest bearing and unsecured.
In the opinion of management the realization of amounts due from affiliates
and the payment of amounts due to affiliates will be realized/liquidated
during the normal course of business.
7. INVESTMENT IN SECURITIES, AFFILIATES:
Clusters Ixtapa and Centro had acquired the common stock of three related
parties at a cost of $1,247,100. These securities were sold to a related
party for $1,818,000 resulting in a gain of $570,900. The gain has been
credited to shareholders' equity as capital in excess of stated value,
since the purchase and sale were between related parties and in effect the
gain represents a capital contribution.
<PAGE> 32
CLUSTERS INMOBILIARIA DE IXTAPA, S.A. DE C.V. , CENTRO DE
PROMOCIONES GUERRERO, S.A. DE C.V., AND 30% INVESTMENT
IN NUEVA TIERRA, S.A. DE C.V.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
8. INCOME TAXES:
Clusters Ixtapa and Centro requires recognition of income tax benefits for
loss carryforwards, credit carryforwards and certain temporary differences
for which tax benefits have not been previously recorded. The tax benefits
recognized must be reduced by a valuation allowance where it is more likely
than not that the benefits may not be realized.
Deferred tax asset balances were primarily the result of new operating loss
carryforwards. Since it is more likely than not that all future tax
benefits will not be realized, a valuation allowance has been recorded for
the deferred net tax assets. There are no deferred tax liability balances.
As of June 30, 1996, Clusters Ixtapa and Centro has a net operating loss
carryforward of approximately $425,800 that may be used to offset future
taxable income expiring in varying years to 2005.
9. CONTINGENCY, LITIGATION AND COMMITMENT:
During 1994 the Mexican peso was permitted to float against the U.S. dollar
and other currencies. As a result, the peso devalued from $3.4662
pesos/dollar to approximately $3.9413 pesos/dollar. It is not possible to
determine the effect the devaluation will have upon future pricing or
costs; however, it is management's opinion that the devaluation will not
have a material adverse effect upon Clusters Ixtapa and Centro's future
operations.
<PAGE> 33
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
<PAGE> 34
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Pursuant to an Amended and Restated Agreement ("Agreement") dated as of August
19, 1996, (the "Closing Date"), by and among International Realty Group, Inc.
("IRG") and DSC, S.A. de C.V. ("DSC"), and Hemisphere Development Limited
("Hemisphere"), IRG was acquired through a Reverse Acquisition with DSC
designated as the acquiror. Pursuant to the terms and conditions of the
Agreement, DSC transferred its 75% interest in Clusters Inmobiliaria de Ixtapa,
S.A. de C.V. ("Clusters Ixtapa"), its 100% interest in Centro de Promociones
Guerrero, S.A. de C.V. ("Centro"), its 30% interest in Nueva Tierra, S.A. de
C.V. ("Nueva Tierra"), a Promissory Note ("Cluster's Note") in the amount of
$5,628,426, and cash totaling $300,000 to IRG. Hemisphere transferred its 100%
interest in Newland Corporation ("Newland"), which holds the remaining 70% of
Nueva Tierra. Nueva Tierra has interests in three participating associations in
Mexico, which are under the management control of DSC. DSC and Hemisphere
transferred net assets totaling $9,799,300 in exchange for 53,360,960 and
53,277,340 shares of IRG common stock, respectively.
The Reverse Acquisition has been accounted for in a manner similar to a pooling
of interest in accordance with Accounting Principles Board Opinion No. 16,
Accounting for Business Combinations, since it represents an exchange of
entities under common control.
The following unaudited pro forma condensed combined balance sheet of IRG, dated
as of June 30, 1996, assumes the Reverse Acquisition was effective as of such
date.
The following unaudited condensed pro forma combined statements of operations of
IRG for the six months ended June 30, 1996 and 1995 and for the years ended
December 31, 1995 and 1994 assumes the Reverse Acquisition was effective as of
January 1, 1994.
The unaudited pro forma results of operations do not purport to be indicative of
the results of operations that would have been obtained if the Reverse
Acquisition were effective as of January 1, 1994 or of any future results of
operations. These financial statements should be read in conjunction with the
historical consolidated financial statements and the related notes thereto of
IRG, Clusters Ixtapa, Centro and Newland.
<PAGE> 35
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED BALANCE SHEET - JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
IRG DSC NEWLAND PRO FORMA IRG
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, at cost:
Property held for development $ 485,300 $ 9,458,500 $ 609,600 $ -- $ 10,553,400
------------ ------------ ----------- ------------ ------------
Receivables:
Due from controlling shareholder -- 2,159,500 -- 170,000(1) 2,329,500
Other receivables 147,200 -- -- -- 147,200
------------ ------------ ----------- ------------ ------------
147,200 2,159,500 -- 170,000 2,476,700
Cash and equivalents 17,800 17,800 -- -- 35,600
Investment in Nueve Tierra, S.A. de C.V -- 13,900 -- (13,500)(2) --
Furniture, equipment and improvements, net 196,700 -- -- -- 196,700
Excess of cost over estimated fair valued of net
assets acquired, net 132,000 -- -- -- 132,000
Other assets 132,800 33,000 -- -- 165,800
------------ ------------ ----------- ------------ ------------
$ 1,111,800 $ 11,682,700 $ 609,600 $ 156,100 $ 13,560,200
============ ============ =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and notes payable $ 242,500 $ 659,500 $ 483,600 $ (130,000)(1) $ 1,255,600
Due to affiliates -- 5,629,700 -- (5,628,400)(3) 1,300
Accounts payable 129,200 128,900 -- -- 258,100
Accrued and other liabilities 485,300 126,100 67,000 -- 678,400
------------ ------------ ----------- ------------ ------------
Total liabilities 857,000 6,544,200 550,600 (5,758,400) 2,193,400
------------ ------------ ----------- ------------ ------------
Minority Interest 32,400 1,300,100 26,500 (13,900)(2) 1,345,100
------------ ------------ ----------- ------------ ------------
Shareholders' equity:
Common stock 9,000 -- -- 1,000 (4) 10,000
Capital in excess of par 1,053,400 7,578,900 60,500 5,628,400 (3) 4,912,800
90,900 (4)
300,000 (1)
(9,799,300 (4)
Convertible note 9,707,400 (4) 9,707,400
Cumulative translation adjustment (208,500) -- -- -- (208,500)
Accumulated deficit (616,000) (3,740,500) (28,000) -- (4,384,500)
------------ ------------ ----------- ------------ ------------
237,900 3,838,400 32,500 5,928,400 10,037,200
Less treasury stock 15,500 15,500
------------ ------------ ----------- ------------ ------------
222,400 3,838,400 32,500 5,928,400 10,021,700
------------ ------------ ----------- ------------ ------------
$ 1,111,800 $ 11,682,700 $ 609,600 $ 156,100 $ 13,560,200
============ ============ =========== ============ ============
</TABLE>
Read the accompanying notes to unaudited condensed pro forma combined
financial statements
<PAGE> 36
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
IRG DSC NEWLAND PRO FORMA IRG
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
--------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues from services provided $ 309,800 $ -- $ -- $ -- $ 309,800
--------- --------- -------- --------- ---------
Operating expenses:
Amortization and depreciation 27,400 -- -- -- 27,400
Direct 162,000 -- -- -- 162,000
Payroll and related benefits 147,000 -- -- -- 147,000
Selling, general and administrative 124,700 -- -- -- 124,700
--------- --------- -------- --------- ---------
461,100 -- -- -- 461,100
--------- --------- -------- --------- ---------
Loss before other income (expense), minority
interest and provision for income taxes (151,300) -- -- -- (151,300)
--------- --------- -------- --------- ---------
Other income (expense):
Interest income -- 56,400 -- -- 56,400
Interest expense (4,400) (20,000) (39,400) (63,800)
Losses from foreign currency -- (88,100) (9,900) -- (98,000)
Equity in losses of Nueva Tierra -- (12,100) -- 12,100(2) --
Other -- (53,100) -- -- (53,100)
--------- --------- -------- --------- ---------
(4,400) (116,900) (49,300) 12,100 (158,500)
--------- --------- -------- --------- ---------
Loss before minority interest and provision for
income taxes (155,700) (116,900) (49,300) 12,100 (309,800)
Minority interest in loss of subsidiaries 2,900 22,900 21,300 (12,100)(2) 35,000
--------- --------- -------- --------- ---------
Loss before provision for income taxes (152,800) (94,000) (28,000) -- (274,800)
Provision for income taxes -- 16,200 -- -- 16,200
--------- --------- -------- --------- ---------
Net (loss) $(152,800) $(110,200) $(28,000) $ -- $(291,000)
========= ========= ======== ========= =========
Loss per share $ (0.02) (5) $ -
========= =========
</TABLE>
Read the accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 37
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
IRG DSC NEWLAND PRO FORMA IRG
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from services provided $ 625,600 $ -- $ -- $ -- $ 625,600
----------- ----------- ----------- ----------- -----------
Operating expenses:
Amortization and depreciation 43,300 -- -- -- 43,300
Direct 315,000 -- -- -- 315,000
Payroll and related benefits 245,900 -- -- -- 245,900
Selling, general and administrative 231,600 -- -- -- 231,600
----------- ----------- ----------- ----------- -----------
835,800 -- -- -- 835,800
----------- ----------- ----------- ----------- -----------
Loss before other income (expense) and
minority interest (210,200) -- -- -- (210,200)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income 3,774,500 -- -- 3,774,500
Interest expense (23,900) (5,770,000) -- -- (5,793,900)
Gains (losses) from foreign currency 765,300 -- -- 765,300
Other (1,500) -- -- (1,500)
----------- ----------- ----------- ----------- -----------
(23,900) (1,231,700) -- -- (1,255,600)
----------- ----------- ----------- ----------- -----------
Loss before minority interest (234,100) (1,231,700) -- -- (1,465,800)
Minority interest in loss of subsidiaries -- (315,600) -- -- (315,600)
----------- ----------- ----------- ----------- -----------
Net loss $ (234,100) $ (916,100) $ -- $ -- $(1,150,200)
=========== =========== =========== =========== ===========
Loss per share $ (0.03) (5) $ (0.01)
=========== ===========
</TABLE>
Read the accompanying notes to unaudited condensed pro forma combined financial
statements
<PAGE> 38
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
IRG DSC NEWLAND PRO FORMA IRG
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from services provided $ 1,129,400 $ -- $ -- $ -- $ 1,129,400
----------- ----------- --------- --------- -----------
Operating expenses:
Amortization and depreciation 87,800 -- -- -- 87,800
Direct 620,800 -- -- -- 620,800
Payroll and related benefits 415,700 -- -- -- 415,700
Selling, general and administrative 378,000 -- -- -- 378,000
----------- ----------- --------- --------- -----------
1,502,300 -- -- -- 1,502,300
----------- ----------- --------- --------- -----------
Loss before other income (expense), minority
interest and provision for income taxes (372,900) -- -- -- (372,900)
----------- ----------- --------- --------- -----------
Other income (expense):
Interest income 95,000 7,031,900 -- -- 7,126,900
Interest expense (27,000) (9,372,700) -- -- (9,399,700)
Gains from foreign currency 1,458,700 -- -- 1,458,700
Other (51,500) (600) -- -- (52,100)
----------- ----------- --------- --------- -----------
16,500 (882,700) -- -- (866,200)
----------- ----------- --------- --------- -----------
Loss before minority interest and provision for
income taxes (356,400) (882,700) -- -- (1,239,100)
Minority interest in income (loss) of subsidiaries 600 (251,300) -- -- (250,700)
----------- ----------- --------- --------- -----------
Loss before provision for income taxes (357,000) (631,400) -- -- (988,400)
Provision for income taxes 2,900 (16,200) -- -- (13,300)
----------- ----------- --------- --------- -----------
Net (loss) $ (359,900) $ (615,200) $ -- $ -- $ (975,100)
=========== =========== ========= ========= ===========
Loss per share $ (0.04) (5) $ (0.01)
=========== ===========
</TABLE>
Read the accompanying notes to unaudited condensed pro forma combined financial
statements
<PAGE> 39
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
IRG DSC NEWLAND PRO FORMA IRG
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from services provided $1,298,600 $ -- $ -- $ -- $ 1,298,600
---------- ----------- ---------- ---------- -----------
Operating expenses:
Amortization and depreciation 90,400 -- -- -- 90,400
Direct 582,800 -- -- -- 582,800
Payroll and related benefits 411,300 -- -- -- 411,300
Selling, general and administrative 492,900 -- -- -- 492,900
---------- ----------- ---------- ---------- -----------
1,577,400 -- -- -- 1,577,400
---------- ----------- ---------- ---------- -----------
Loss before other income (expense), minority
interest and provision for income taxes (278,800) -- -- -- (278,800)
---------- ----------- ---------- ---------- -----------
Other income
(expense):
Interest income 29,600 3,088,700 -- -- 3,118,300
Interest expense (8,700) (4,242,200) -- -- (4,250,900)
Gains (losses) from foreign currency -- 1,290,500 -- -- 1,290,500
Other -- (37,600) -- -- (37,600)
---------- ----------- ---------- ---------- -----------
20,900 99,400 -- -- 120,300
---------- ----------- ---------- ---------- -----------
Loss before minority interest and provision for
income taxes (benefit) (257,900) 99,400 -- -- (158,500)
Minority interest in loss of subsidiaries -- (59,300) -- -- (59,300)
---------- ----------- ---------- ---------- -----------
Loss before provision for income
taxes (benefit) (257,900) 158,700 -- -- (99,200)
Provision for income taxes
(benefit) (21,200) -- -- -- (21,200)
---------- ----------- ---------- ---------- -----------
Net income (loss) $ (236,700) $ 158,700 $ -- $ -- $ (78,000)
========== =========== ========== ========== ===========
Loss per share $ (0.04) (5) $ --
========== ===========
</TABLE>
Read the accompanying notes to unaudited condensed
pro forma combined financial statements.
<PAGE> 40
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) Pursuant to the Agreement, DSC will make a cash capital contribution of
$300,000 to IRG. As of June 30, 1996, DSC had advanced $130,000 of such
contribution which is included in note payable in the historical
financial statements. The remaining balance is included in due from
controlling shareholder in the historical financial statement.
(2) Represents elimination of DSC's 30% interest in Nueva Tierra. Pursuant
to the Agreement, Newland and DSC transfered 100% of the interest in
Nueva Tierra to IRG, 70% and 30%, respectively.
(3) DSC acquired the Cluster's Note from Nacional Financeria, S.N.C.
(NAFIN) on December 29, 1995 as the result of a debt restructuring
agreement between NAFIN, DSC, and Clusters Ixtapa. Pursuant to the debt
restructuring, the Cluster's Note became payable to DSC. Pursuant to
the Agreement, DSC transferred the Cluster's Note to IRG thus creating
an offsetting intercompany payable and receivable between Clusters
Ixtapa and IRG, respectively. This adjustment eliminates the payable
and reflects the transfer as a capital contribution.
(4) Represents 1,000,000 shares of common stock, at $.001 par value, issued
and execution of convertible notes at the Closing Date. As of the
Closing Date, IRG had authorized 10,000,000 shares of stock. Pursuant
to the Agreement and through the filing of an information statement
under Regulation 14C of the Securities and Exchange Act of 1934, IRG
intends to increase the number of authorized shares to 450,000,000
shares of common stock. Subsequent to the increase in the number of
authorized shares and pursuant to the Agreement the convertible notes
will be converted into 105,638,300 shares of common stock. Based on the
net assets and number of shares to be transferred pursuant to the
agreement, a net transfer value of $9,799,300 or $.0919 per share has
been established.
(5) Pro forma loss per share includes shares associated with convertible
note. The weighted average shares outstanding used in the historical
and pro forma loss per share are as follows:
<TABLE>
<CAPTION>
Period Ending Historical Pro forma
- --------------- --------- -----------
<S> <C> <C>
December 31, 1994 6,546,934 113,185,234
June 30, 1995 8,215,239 114,853,539
December 31, 1995 8,324,395 114,962,695
June 30, 1996 8,954,187 115,592,487
</TABLE>
<PAGE> 1
EXHIBIT 99.10
AMENDED AND RESTATED AGREEMENT
This Amended and Restated Agreement (the "Agreement") is made
effective as of August 19, 1996 by and among INTERNATIONAL REALTY GROUP, INC.
("IRG"), a Delaware corporation, 111 Northwest 183 Street, Suite 518, Miami,
Florida 33169, DSC, S.A. DE C.V. ("DSC"), a Mexico corporation,
Constituyentes No. 647, Col. 16 de Septiembre, Mexico, D.F. 11810, and
HEMISPHERE DEVELOPMENTS LIMITED ("Hemisphere"), an Isle of Man corporation,
Atlantic House, 4-8 Circular Road, Douglas, Isle of Man.
RECITALS:
A. IRG has entered into a share exchange transaction with DSC, pursuant
to the terms of those certain agreements, dated October 6, 1995 (the
"Agreement"), February 7, 1996 (the "First Amendment") and July 31, 1996 (the
"Second Amendment"). Collectively, the Agreement, First Amendment and Second
Amendment are referred to herein as the "DSC Agreements."
B. IRG has also entered into a share exchange transaction with
Hemisphere, pursuant to the terms of those certain agreements, dated February 9,
1996 (the "Hemisphere Agreement"), and July 31, 1996 ("Hemisphere Amendment").
Collectively, the Hemisphere Agreement and the Hemisphere Amendment are referred
to herein as the "Hemisphere Agreements."
C. IRG, DSC and Hemisphere desire to amend and restate the DSC
Agreements and the Hemisphere Agreements in order to conform the terms of such
agreements to the accounting treatment of the share exchange transaction in
accordance with generally accepted accounting principles, and to make certain
amendments to such agreement, all in accordance with the terms and conditions of
this Agreement.
D. IRG, DSC and Hemisphere desire that this Agreement shall constitute
the entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written and
oral, between or among the parties hereto with respect to the subject matter
hereof, including, without limitation, the DSC Agreements and the Hemisphere
Agreements.
E. IRG, DSC and Hemisphere hereby acknowledge that they are aware of
the contents and legal effects of all the agreements, contracts, arrangements,
either written or verbal, including the Limited Partnership Agreements
(literally, "asociaciones en participation"), referred to herein as well as of
any other document creating, amending or terminating in any manner any rights or
obligations of the parties hereto.
NOW THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, IRG, DSC and Hemisphere agree as follows:
1. Recitals. The recitals set forth above are true and correct and are
made a part hereof.
2. Basic Transaction. IRG has consummated a share exchange transaction
with each of DSC and Hemisphere effective August 19, 1996 (the "Closing Date" or
the "Closing") pursuant to the terms and conditions of this Agreement. Such
transaction is intended to effect a reverse merger of IRG with DSC as the
acquiring party and shall be accounted for as a pooling of interest at
historical cost, according to U.S. Generally Accepted Accounting Principles.
<PAGE> 2
3. DSC Share Exchange. On the Closing Date, IRG shall have purchased from
DSC and DSC shall have sold to IRG the following assets (the "DSC Assets"): (i)
DSC's 100 percent interest in Centro de Promociones Guerrero S.A. de C.V.
("Centro"); (ii) DSC's 75 percent interest in Clusters Inmobiliaria de Ixtapa,
S.A. de C.V. ("Clusters Ixtapa"); (iii) a promissory note ("Clusters Note") in
the principal amount of $5,628,426 of Clusters Ixtapa; (iv) DSC's 30 percent
interest in Nueva Tierra, S.A. de C.V. ("Nueva Tierra"). The table attached
hereto as Exhibit "A" summarizes the DSC Assets acquired, the interests and
historical cost basis of each. In addition, DSC shall make advances to IRG in
the aggregate amount of $300,000, which amounts shall be treated as a capital
contribution to IRG.
In exchange for the DSC Assets, IRG shall have issued to DSC, as of the
Closing Date, a Convertible Promissory Note (the "DSC Note") in the principal
amount of $4,858,828 and convertible into 52,875,030 shares of IRG's common
stock, par value $.001 per share (the "Common Stock"); and (ii) 485,930 shares
of Common Stock. The form of the DSC Note is attached hereto as Exhibit "B" to
this Agreement.
4. Hemisphere Transaction. On the Closing Date, IRG shall have purchased
from Hemisphere and Hemisphere shall have sold to IRG its 100% interest in
Newland Corporation (the "Hemisphere Asset"), which, in turn, holds a 70 percent
interest in Nueva Tierra. The table attached hereto as Exhibit "A" summarizes
the Nueva Tierra partnerships -- Villa Del Carbon, Hacienda Del Franco, and
Bahia de Cortes -- acquired, the interests and historical cost basis of each. As
of the Closing Date, Nueva Tierra's interest in the partnerships is as follows:
Bahia de Cortes 77.89%
Hacienda del Franco 81.13%
Villas Del Carbon 79.08%
In exchange for the Hemisphere Asset, IRG shall have issued to
Hemisphere, as of the Closing Date: (i) a Convertible Promissory Note (the
"Hemisphere Note") in the principal amount of $4,848,558 and convertible into
52,763,270 shares of Common Stock; and (ii) 514,070 shares of Common Stock. The
form of the Hemisphere Note is attached hereto as Exhibit "C" to this Agreement.
5. Representations and Warranties of IRG. IRG hereby represents and
warrants to each of DSC and Hemisphere:
a. IRG is authorized to issue 10,000,000 shares of Common Stock, of
which 8,954,187 shares have been issued and are outstanding as of the Closing
Date. IRG's majority shareholders agree to use their best efforts to cause an
increase in the number of authorized shares to 450,000,000. IRG owns all of the
issued and outstanding shares of stock of all of its subsidiaries: International
Realty Group (Holdings), Inc., a Florida corporation; The Appraisal Group, Inc.,
a Florida corporation; Appraisal Group International, Inc., a Florida
corporation; IRG Financial Services, Inc., a Florida corporation; U.S. Property
Investment and Auction, Inc., a Florida corporation; Caye Bokel, Ltd., a Belize
corporation, and Stragix International, Inc., a Florida corporation which in
turn owns 75% of Appraisal Group International Rt., a Hungary Corporation;
2
<PAGE> 3
b. IRG and its subsidiaries own no real properties except the Caye
Bokel property and two vacant lots in LaGrange, Texas, and all leases of real or
other property are valid, enforceable in accordance with their terms, and not in
default.
c. IRG and its subsidiaries have properly filed or caused to be filed
all United States federal, state, local, and foreign income and other tax
returns, reports and declarations that are required by applicable law to be
filed by them, and have paid, or made full and adequate provisions for the
payment of, all federal, state, local, and foreign income and other taxes
properly due for the periods covered by such returns, reports, and declarations,
except such taxes, if any, as are adequately reserved against in IRG's most
recent audited financial statements. Based upon due inquiry by IRG, IRG to the
best of its knowledge and belief states that Appraisal Group International Rt.
is in compliance with this paragraph.
d. There is no litigation pending or threatened, nor have any summons,
notices or warning been received from any governmental agency, department with
respect to any material fine, or material violation of any law or ordinance, or
other type of enforcement proceeding, including but not limited to environmental
matters, with respect to IRG or its subsidiaries which involve a potential
monetary recovery in excess of $25,000 in United States dollars.
e. IRG has or will have on the date of Closing good and unencumbered
title to the shares of IRG stock necessary to complete this transaction as
provided above, free and clean of all mortgages, liens and encumbrances of any
nature, and has or will have on the Closing Date the power and authority to
transfer said shares to Hemisphere and DSC free and clear of liens and
encumbrances on the Closing Date.
f. Except as specifically referenced in this Agreement, none of IRG or
its subsidiaries have or will enter into any transaction, incur any obligation
or conduct business affairs except in the normal course of business between
September 30, 1995 and the Closing Date.
g. All of the financial statements of IRG provided to either DSC or
Hemisphere and filings with the Securities and Exchange Commission shall be true
and accurate in all material respects for the periods indicated, and shall not
omit any material fact or circumstance necessary or required to prevent the
information from being misleading. Since the date of the most recent IRG audited
financial statement, IRG and its subsidiaries have no liabilities, fixed or
contingent which are not fully provided for in the IRG Audited Financial
Statements, except for trade payables incurred in the ordinary course of
business. IRG shall have provided Hemisphere and DSC a list of liabilities of
IRG and its subsidiaries as of the Closing Date which shall be certified by IRG
as true and correct, and incorporated herein by reference.
h. IRG and its subsidiaries have, and in the past have had no labor
agreements, and no employee benefit plans sponsored, maintained or contributed
to by IRG or its subsidiaries for the benefit of employees, officers or
directors.
i. To the best of IRG's knowledge and belief, IRG and its subsidiaries
are in good standing with the SEC, NASD, and each state and country where they
conduct business and have received no notification or inquiry giving reasonable
cause to believe otherwise, and IRG will provide at closing good standing
certificates or their equivalent from each such country, including Belize and
Hungary, and each such state in the United States. As a part of IRG's due
diligence response provided to Hemisphere and DSC, IRG will continue to provide
Hemisphere and DSC
<PAGE> 4
with copies of all filings made by IRG with the SEC or NASD, and copies of all
letters, notices or other documents sent by IRG to or received by IRG from the
SEC or the NASD up to and including the date of the Closing.
6. Representations and Warranties of Hemisphere. Hemisphere hereby
represents and warrants to IRG:
a. On the date of Closing, Hemisphere has or will cause good and
unencumbered title to the Hemisphere Assets to be sold and transferred to IRG.
b. There is no litigation pending or threatened, nor have any summons,
notices or warning or warning been received from any governmental agency, or
department with respect to any material fine, or material violation of any law
or ordinance,or other type of enforcement proceeding, including but not limited
to environmental matters, with respect to Newland, Nueva Tierra or the
properties which involves in the aggregate a potential monetary recovery in
excess of $500,000 in United States dollars for all such litigation, claims or
fines. Based upon due inquiry by Hemisphere, Hemisphere to the best of its
knowledge and belief states that Newland, Nueva Tierra and the properties are in
compliance with this paragraph.
c. The financial statement of Newland provided to IRG shall be true and
accurate in all material respects for the periods indicated for the statement,
and shall not omit any material fact or circumstance necessary or required to
prevent the financial information from being misleading. Since the date of the
most recent Newland financial statement and except as specifically referenced in
this Agreement, Newland shall have conducted its business only in the ordinary
and usual course.
7. Representations and Warranties of DSC. DSC hereby represents and
warrants to IRG:
a. On the date of Closing, DSC has or will cause good and unencumbered
title to the DSC Assets to be sold and transferred to IRG.
b. There is no litigation pending or threatened, nor have any summons,
notices or warning or warning been received from any governmental agency, or
department with respect to any material fine, or material violation of any law
or ordinance,or other type of enforcement proceeding, including but not limited
to environmental matters, with respect to the DSC Assets which involves in the
aggregate a potential monetary recovery in excess of $500,000 in United States
dollars for all such litigation, claims or fines. Based upon due inquiry by DSC,
DSC to the best of its knowledge and belief states that all of the DSC Assets
are in compliance with this paragraph.
c. All of the financial statement provided by DSC to IRG are true and
accurate in all material respects for the periods indicated for the statement,
and shall not omit any material fact or circumstance necessary or required to
prevent the financial information from being misleading. Since the date of the
latest period covered by such financial statements and except as specifically
referenced in this Agreement, DSC shall have conducted its business only in the
ordinary and usual course.
<PAGE> 5
8. Deliveries at Closing.
a. Prior to, or at Closing, DSC and Hemisphere shall each have received
from IRG the following:
i. Appropriate corporate resolutions authorizing the transfer of
stocks;
ii. A copy of the original request to American Stock Transfer for
the issuance of the IRG stock certificates to DSC and
Hemisphere;
iii. Documentation evidencing the authority of the signatories;
iv. Documentation evidencing the validity of the Charter and
By-Laws of IRG; and
v. Documentation evidencing the validity of the transfer of IRG's
stock to DSC and Hemisphere.
b. Prior to, or at Closing, IRG shall have received from DSC certified
English translation of the following:
i. Updated third party appraisals of the DSC Assets listed on
Exhibit A;
ii. Appropriate documentation evidencing the authority of all
signatories;
iii. Documentation evidencing the partnerships' and companies'
ownership interests in the properties listed on
iv. Exhibit A; 1 Appropriate corporate resolutions authorizing the
transfer of stock; 1 Original stock certificates duly endorsed
to IRG;
vi. An Opinion Letter from DSC's Mexican counsel opining as to (i)
the validity of the corporate status of each of the DSC
companies being acquired, (ii) the authority of the
signatories, (iii) the validity of the Charter and By-Laws of
the companies (attaching same as exhibits), (iv) the ownership
interest of the companies in the properties, (v) the validity
of the transfer of stock of those companies to IRG, (vi) IRG's
ownership interest in the companies and (vii) the fact that
the properties are not subject to any liens, loans or
encumbrances, except as provided for in their financial
statements; and
vii. A statement from DSC's Mexican accountants verifying that no
adverse, material changes in DSC's financial condition have
occurred from the date of DSC's most recent financial
statements to the date of the Closing.
c. Prior to, or at Closing, IRG shall have received from Hemisphere a
certified English translation of the following:
i. Updated third party appraisals of the Hemisphere Assets listed
on Exhibit A;
ii. Documentation evidencing the validity of the existence of the
limited partnerships listed on Exhibit A (including the Limited
Partnership Agreements);
iii. Documentation evidencing the validity of the existence of
Nueva Tierra and Newland (including Charter and By-Laws of both
companies);
iv. Documentation evidencing the companies' ownership interest in
the partnerships listed on Exhibit A;
v. Appropriate corporate resolutions evidencing the authority of
all signatories;
vi. Documentation evidencing the ownership interest of the
partnerships in the subject properties;
<PAGE> 6
vii. Original stock certificates duly endorsed to IRG;
viii. An Opinion Letter from Hemisphere's Mexican counsel opining as
to (i) the validity of the Limited Partnerships and
Corporations, (ii) the validity of the equity interest held
by the Corporations in the Limited Partnerships, (iii) the
authority of the signatories, (iv) the validity of the
Charter and By-Laws of the companies (attaching same as
exhibits), (v) the ownership interest in the subject
properties, (vi) the validity of the transfer of stock of
those companies to IRG, (vii) IRG's ownership interest in
the companies and (vii) the fact that the properties are not
subject to any liens, loans or encumbrances, except as
provided for in their financial statements; and
xi. A statement from Nueva Tierra's Mexican accountants verifying
that no adverse, material changes in Nueva Tierra's financial
condition have occurred from the date of Nueva Tierra's most
recent financial statements to the date of the Closing.
9. Issuance of Shares and Registration Rights. The IRG stock issued to DSC
and Hemisphere pursuant to this transaction may be issued to DSC and Hemisphere
in reliance on Regulation "S" of the Securities Act of 1933 (the "Securities
Act"). DSC and Hemisphere on the Closing Date shall execute a subscription
agreement which among other things shall acknowledge that it has acquired the
IRG shares for investment purposes only, and such shares shall be subject to the
restriction on transfer set forth in Rule 144 of the Securities Act and will not
be tradable in the market without registration unless subject to an exemption
from registration. IRG hereby grants to DSC and Hemisphere piggyback and demand
registration rights to the shares acquired hereunder for a period of three years
following the Closing Date.
10. Change in the Board of Directors and Officers of IRG on the Closing
Date. On the Closing Date, John Day, Geoffrey Bell and Jack Birnholz shall have
resigned from the IRG Board of Directors, and the remaining Directors Richard
Bradbury and Alton Hollis shall have elected Bernardo Dominguez C. to the Board
of Directors of IRG. Shirley Birnholz shall have resigned as Secretary of IRG on
the Closing Date and shall be replaced with Pablo Macedo. Simultaneous or prior
to the Closing Date, Richard Bradbury shall have entered into a one-year
employment contract satisfactory to Mr. Bradbury and DSC. Mr. Bradbury will
receive the same salary, without bonus or stock awards, as reflected for the
year 1994 in IRG's 10K Report for the year ending December 31, 1994. After the
authorization of the increase of capital, as called for herein, IRG shall
immediately call for a special meeting of the shareholders to increase the
number of Directors from three to five and to elect five new Directors retaining
one director designated by IRG at the time of Closing, one director designated
by Hemisphere, and three directors designated by DSC.
11. Information Statement. After Closing, IRG will amend its Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
its current level of 10,000,000 shares to 450,000,000 shares. Jack Birnholz and
Richard Bradbury, who jointly control more than a majority of the issued and
outstanding Common Stock, will execute a written Stockholder Consent approving
such amendment to the Certificate of Incorporation. In accordance with
regulations of the SEC, IRG must file an Information Statement with the SEC.
Among other things, this Information Statement describes the amendment to the
Certificate of Incorporation to be approved by the written consent of two
stockholders as well as the transaction contemplated in this Agreement,
including a description of the properties to be acquired by IRG. Immediately
<PAGE> 7
after Closing, IRG shall diligently prepare the Information Statement for review
by the SEC. After the staff of the SEC has completed its review of the
Information Statement, IRG will mail a copy of the Information Statement,
including all exhibits, to each stockholder. Twenty-one days after the
Information Statement is presented to its shareholders, and as soon as practical
thereafter, IRG shall amend its Certificate of Incorporation increasing the
authorized shares and the DSC and Hemisphere Notes referenced in this Agreement
will be converted to Common Stock of IRG as provided for therein.
12. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, U.S.A. and the parties hereby submit to the jurisdiction
thereof.
13. Notices. Any notices sent to DSC relating to this Agreement shall be
sent by facsimile and overnight delivery addressed as follows:
Bernardo Dominguez C. Pablo Macedo
DSC S.A. de C.V. DSC S.A. de C.V.
Constituyentes No. 647, Constituyentes No. 647,
Col. 16 de Septiembre Col. 16 de Septiembre
Mexico, D.F. 11810 Mexico, D.F. 11810
Telephone: 011 52 5 277-9046 Telephone: 011 52 5 277-9046
Facsimile: 011 52 5 277-9012 Facsimile: 011 52 5 277-9012
Any notices sent to Hemisphere relating to this Agreement shall be sent
by facsimile and overnight delivery addressed as follows:
Ms. Monique Roggero-Ciana, Director
Hemisphere Developments Limited
Atlantic House, 4-8 Circular Road, Douglas, Isle of Man
Telephone: 011 41 22 300 1700
Facsimile: 011 41 22 300 1711
Any notices sent to IRG relating to this Agreement shall be sent by
facsimile and overnight delivery addressed as follows:
Mr. Richard M. Bradbury
International Realty Group, Inc.
111 N.W. 183 St., Suite 518, Miami, Florida 33169 U.S.A.
Telephone: (305) 944-8811
Facsimile: (305) 651-3394
Any notice sent to either DSC, Hemisphere or IRG relating to this
Agreement shall be sent by facsimile and overnight delivery addressed as
follows:
Mr. Lee C. Schmachtenbrg, Esq. Information copies sent to:
Schmachtenberg & Associates
1533 Sunset Drive, Suite 201 Mr. Jack Birnholz
Miami, Florida 33143 2221 N.E. 202 Street
Telephone: (305) 666-4676 North Miami Beach, FL 33180
Facsimile: (305) 666-4780
<PAGE> 8
14. Confidentiality. Each party shall keep information disclosed to it by
the other party relating to its business and financial affairs strictly
confidential, except where disclosure is required by law or the information is
public knowledge. Each party shall ensure that its obligation of confidence is
observed by its employees and professional advisors and/or representatives.
15. Headings. The headings in this Agreement are for reference purposes
only and are not intended to have any meaning or substantive effect.
16. Entire Agreement. This Agreement, including all of the Exhibits
attached hereto which are incorporated herein by this reference, constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersedes all prior agreements and undertakings, both written
and oral, between or among the parties hereto with respect to the subject matter
hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DSC, S.A. de C.V. Hemisphere Developments Limited
By: /s/ Bernardo Dominguez C. By: /s/ Monique Roggero-Ciana
----------------------------------------- --------------------------
Bernardo Dominguez C. Monique Roggero-Ciana
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Richard M. Bradbury By: /s/ Jack Birnholz
----------------------------------------- --------------------------
Richard M. Bradbury, President, Jack Birnholz
Chief Financial Officer, and Shareholder Shareholder
By: /s/ Richard M. Bradbury
--------------------------
Richard M. Bradbury
Shareholder
<PAGE> 9
EXHIBIT A
INTERNATIONAL REALTY GROUP, INC.
AS OF 6/30/96
ACQUISITION OF DSC / HEMISPHERE ASSETS
<TABLE>
<CAPTION>
ASSETS DSC DSC CLUSTERS CENTRO HACIENDA
CAPITAL NOTE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate held for development 9,054,885 403,591 547,186
Cash 132,525 17,756
Due from DSC 104,975 1,912,189 247,277
VAT Receivable 32,646 109
Other Assets 237
Cancellation of
Notes to Bank 5,628,426 (5,628,426) (659,508) (483,618)
Accounts Payable (69,571) (59,290)
Accrued Interest (66,984)
Accrued liabilities (119,653) (7,767)
------------------------------------------------------------------------------------------------------
Net Assets 300,000 5,628,426 5,200,063 (75,588) (3,416)
======================================================================================================
Paid-in Capital 300,000 5,628,426 6,788,276 776,744 29,174
Retained earnings (2,888,229) (852,332) (31,945)
------------------------------------------------------------------------------------------------------
300,000 5,628,426 3,900,047 (75,588) (2,771)
Minority interest 1,300,016 (645)
------------------------------------------------------------------------------------------------------
Net Assets 300,000 5,628,426 5,200,063 (75,588) (3,416)
======================================================================================================
Minority share % 0.00% 0.00% 25.00% 0.00% 18.87%
======================================================================================================
Common Shares: net equity transfer value $9,799,278 or $0.0919 per share.
DSC 53,360,960 issued at closing 485,930 $44,653
Hemisphere Note: 53,277,340 issued at closing 514,070 $47,239
----------- --------- -------
106,638,300 1,000,000 $91,892
<CAPTION>
ASSETS VILLA BAHIA TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate held for development 43,104 19,358 10,068,124
Cash 150,281
Due from DSC 2,264,441
VAT Receivable 32,755
Other Assets 237
Cancellation of
Notes to Bank (1,143,126)
Accounts Payable (128,861)
Accrued Interest (66,984)
Accrued liabilities (127,420)
-------------------------------------------------------------------
Net Assets 43,104 19,358 11,111,947
===================================================================
Paid-in Capital 34,087 15,078 13,571,784
Retained earnings (3,772,506)
-------------------------------------------------------------------
34,087 15,078 9,799,278
Minority interest 9,017 4,280 1,312,869
-------------------------------------------------------------------
Net Assets 43,104 19,358 11,111,947
===================================================================
Minority share % 20.92% 22.11%
===================================================================
Common Shares:
DSC Note: $4,858,828 convertible to 52,875,030 shares
Hemisphere Note: Note: $4,848,558 convertible to 52,763,270 shares
---------- -----------
$9,707,386 105,638,300
</TABLE>
9
<PAGE> 1
EXHIBIT 99.11
INTERNATIONAL REALTY GROUP, INC.
MIAMI, FLORIDA
AUGUST 19, 1996
CONVERTIBLE NOTE
DUE UPON AUTHORIZED ISSUANCE OF COMMON STOCK
$4,858,828.00 U.S. DOLLARS
INTERNATIONAL REALTY GROUP, INC., a Delaware corporation (the
"Corporation"), for value received promises to pay to DSC S.A. DE C.V.,
$4,858,828.00 or, in the event of the conversion of this Note, as provided for
herein, 52,875,030 shares of the corporation's Common Stock, par value $.001 per
share ("Common Stock").
In the event this Convertible Note is not converted on or before
October 31, 1997, then this Note shall be due and payable on January 1, 1998,
("Maturity Date") together with interest at the rate of FIVE PERCENT (5.0%) per
annum from the Maturity Date, until return of the Collateral. Failure to convert
the face amount of this Convertible Note on the Maturity Date shall be an Event
of Default.
1. CONVERSION. This Convertible Note shall automatically convert
into 52,875,030 shares of Common Stock, immediately after the
Corporation has increased its capital stock so as to permit
the issuance of such shares of Common Stock. Upon conversion,.
this Note shall be canceled on the books of the Corporation
and the Corporation shall have no further obligation hereunder
other than to promptly issue such shares of Common Stock to
the holder hereof.
2. REDEMPTION AND DEFAULT. The Corporation may not at any time
prepay in whole or in part, the principal amount, except by
delivery of the shares. In the Event of Default, the holder of
such Note shall then have the option to extend said Maturity
Date or demand the return of the Collateral.
3. REGISTERED OWNER. The Corporation may treat the person or
persons whose name or names appear on this Convertible Note as
the absolute owner or owners hereof for the purpose of
receiving payment of, or on account of, the principal and
interest due on this Convertible Note and for all other
purposes.
4. RELEASE OF SHAREHOLDERS, OFFICERS AND DIRECTORS. This
Convertible Note is the obligation of the Corporation only and
no recourse shall be had for the payment of any principal or
interest hereon against any shareholder, officer or director
of the Corporation, either directly or through the
Corporation, by virtue of any statute for the enforcement of
any assessment or otherwise. The holder or holders of this
Convertible Note, by the acceptance hereof, and as part of the
consideration for this Convertible Note, release all claims
and waive all liabilities against the foregoing persons in
connection with this Convertible Note.
5. COLLATERAL. This Convertible Note is secured by 30% of the
shares of stock of Nueva Tierra S.A. de C.V., 75% of the
shares of stock of Cluster Inmobiliaria de Ixtapa, S.A. de
C.V., 100% of the shares of stock of Centro de Promociones
Guerrero, S.A. de C.V., and a Note issued by Cluster
Inmobiliaria de Ixtapa, S.A. de C.V. in the amount of
$5,628,426. In the Event of Default, all shares and the Note
shall, upon written notice from the holder to the Corporation,
be immediately transferred to the holder.
6. ENTIRE AGREEMENT. This Convertible Note supersedes and
replaces any other notes, debentures or similar instruments
between the parties, whether written or oral.
IN WITNESS WHEREOF, the Corporation has signed and sealed this
Convertible Note this 19TH day of AUGUST, 1996.
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Richard M. Bradbury
-------------------------------
Attest: Richard M. Bradbury, President
By: /s/ Rita J. Templer
-------------------------------------
Rita J. Templer, Assistant Secretary
<PAGE> 1
Exhibit 99.12
INTERNATIONAL REALTY GROUP, INC.
MIAMI, FLORIDA
AUGUST 19, 1996
CONVERTIBLE NOTE
DUE UPON AUTHORIZED ISSUANCE OF COMMON STOCK
$4,848,558.00 U.S. DOLLARS
INTERNATIONAL REALTY GROUP, INC., a Delaware corporation (the
"Corporation"), for value received promises to pay to HEMISPHERE DEVELOPMENTS
LIMITED, $4,848,558.00 or, in the event of the conversion of this Note, as
provided for herein, 52,763,270 shares of the corporation's Common Stock, par
value $.001 per share ("Common Stock").
In the event this Convertible Note is not converted on or before
October 31, 1997, then this Note shall be due and payable on January 1, 1998,
("Maturity Date") together with interest at the rate of FIVE PERCENT (5.0%) per
annum from the Maturity Date, until return of the Collateral. Failure to convert
the face amount of this Convertible Note on the Maturity Date shall be an Event
of Default.
1. CONVERSION. This Convertible Note shall automatically convert
into 52,763,270 shares of Common Stock, immediately after the
Corporation has increased its capital stock so as to permit
the issuance of such shares of Common Stock. Upon conversion,
this Note shall be canceled on the books of the Corporation
and the Corporation shall have no further obligation hereunder
other than to promptly issue such shares of Common Stock to
the holder hereof.
2. REDEMPTION AND DEFAULT. The Corporation may not at any time
prepay in whole or in part, the principal amount, except by
delivery of the shares. In the Event of Default, the holder of
such Note shall then have the option to extend said Maturity
Date or demand the return of the Collateral.
3. REGISTERED OWNER. The Corporation may treat the person or
persons whose name or names appear on this Convertible Note as
the absolute owner or owners hereof for the purpose of
receiving payment of, or on account of, the principal and
interest due on this Convertible Note and for all other
purposes.
4. RELEASE OF SHAREHOLDERS, OFFICERS AND DIRECTORS. This
Convertible Note is the obligation of the Corporation only and
no recourse shall be had for the payment of any principal or
interest hereon against any shareholder, officer or director
of the Corporation, either directly or through the
Corporation, by virtue of any statute for the enforcement of
any assessment or otherwise. The holder or holders of this
Convertible Note, by the acceptance hereof, and as part of the
consideration for this Convertible Note, release all claims
and waive all liabilities against the foregoing persons in
connection with this Convertible Note.
5. COLLATERAL. This Convertible Note is secured 100% of the
shares of Newland Corporation. In the Event of Default, all
shares and the Note shall, upon written notice from the holder
to the Corporation, be immediately transferred to the holder.
6. ENTIRE AGREEMENT. This Convertible Note supersedes and
replaces any other notes, debentures or similar instruments
between the parties, whether written or oral.
IN WITNESS WHEREOF, the Corporation has signed and sealed this
Convertible Note this 19TH day of AUGUST, 1996.
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Richard M. Bradbury
-------------------------------
Richard M. Bradbury, President
Attest:
By: /s/ Rita J. Templer
------------------------------------
Rita J. Templer, Assistant Secretary
